Treasury rakes in £660m from new pension tax limit

THE amount the Government rakes in from two pension taxes has soared from £7million to £660million in a decade, according to figures released yesterday.

Workers are set limits on what they can save tax-free, both annually and over their lifetimes.

But the threshold at which savers must pay tax on these pension contributions has been slashed in recent years.

As a result, a Government charge on annual contributions above the tax-free allowance – which only raised £2million in 2006/7 – made £561million in 2016/17. And charges on a separate lifetime allowance increased from £5million to £102million over the same time period.

It means the Treasury raked in £663million from the schemes in 2016/17, up from £7million a decade earlier, according to the Office for National Statistics figures.

Critics called it ‘ a penalty on wise investment’. Steve Webb, former pensions minister and policy director at investment firm Royal London, predicted Chancellor Philip Hammond could make further raids on savers in next month’s budget.

The amount people can save tax-free for their pensions each year has been slashed from £255,000 in 2010 to just £40,000 in 2014. This tax-free allowance was reduced further on a sliding scale for those earning £ 150,000 to £210,000 from 2016.

As a result, people earning above £210,000 can only save £10,000 a year tax-free.

The number of people paying a tax charge on pension contributions has more than doubled from 7,150 in 2015/16 to 18,930 in 2016/17. Meanwhile, the lifetime allowance – the limit people can save into their pension pot tax-free across their career – was cut over the last decade from £1.8million to just over £1million.

Mr Webb said: ‘ They are very striking figures. It’s astonishing. If the Chancellor sees the cuts to pension allowances which he’s already made are starting to bring real money in, it will embolden him to go even further.

‘Consistent meddling in pensions is really bad – they should be long-term, stable things.’

Tom Selby, senior analyst at investment firm AJ Bell, said: ‘With policymakers scrabbling to find around £20billion to boost the NHS, it seems inevitable pension

From the Mail, January 20, 2016 tax relief will once again face the Treasury’s steely glare.’

An HM Treasury spokesman said: ‘Currently, 95 per cent of individuals approaching retirement have a pension pot worth less than the lifetime allowance, and 99 per cent of savers make annual contributions below the annual allowance limit.’

PENSION BLOW FOR 1.5MILLION